Our website uses cookies to improve your user experience. If you continue browsing, we assume that you consent to our use of cookies. More information can be found in our Cookies Policy and Privacy Policy.

Mark Dampier: Investors face an election paradox

Brenda from Bristol became an overnight sensation when her reaction to Prime Minister Theresa May’s snap election – “Election? Another election!?” – was aired on the BBC. Her remark is replayed every morning on Radio 4 and I suspect her sentiments echo those of many.

I certainly have some sympathy. We have faced weeks of politicians of all persuasions talking mostly nonsense, desperate not to alienate any part of the electorate. But what does it mean for investors? “Uncertainty” is the buzzword at the moment and an election would ordinarily only add to this. Uncertainty was the reason for stockmarket jitters around the EU referendum, the presidential race in the US and the elections in Europe. Yet, the UK’s snap election is different. Why? Because it is simply not that uncertain. For the Conservatives to lose they would have to commit a gaffe of enormous proportions.

In the main, the problem lies with the opposition – or lack of. The Liberal Democrats’ Tim Farron and Labour’s Jeremy Corbyn appear to have very few credible policies or, if they do, their inability to articulate them to the electorate is likely to result in a landslide Tory win on 8 June.

Whatever your political views, the lack of an opposition to keep a government on its toes spells bad news for the long-term health of the country. Governments are not that dissimilar to businesses. Good competition breeds innovation and cost control, and drives out complacency.

As it is, the Government seems to be remarkably short-sighted. Why was the election not called before triggering Article 50? The clock is already ticking on our departure from the UK and the next six weeks will be wasted fighting an election campaign.

Pricing in the possibilities

So investors are faced with a paradox. In the short term, the high probability of a Tory victory is such that the uncertainty usually surrounding an election is absent. Indeed, if the Conservatives were to lose I would expect significant stockmarket falls in the region of 25 per cent, as a win has already been factored into prices.

Over the longer term, however, a lack of credible opposition is likely to lead to weaker government policies. In victory, the Conservatives will be free from the shackles of their previous manifesto; their so-called promises have already caused issues for Chancellor Philip Hammond, hobbled by an inability to raise money.

The real question to be answered in two short weeks is not which party it will be to guide us through the next four years, but what the policies of the new government will be. One thing we can be almost certain of is that taxes will rise.

The fact remains that our country’s demographics will result in a higher bill for many public services over the coming years. Our ageing population puts strain on the National Health Service and the state pension is paid to a growing number of retirees at a time when the working age (that is, tax-paying) population is reducing.

The Government is currently borrowing vast amounts of money to fund this deficit and without a boost to its income – the taxes it takes – the black hole of debt grows ever deeper.

My advice to investors remains much the same. A looming rise in taxes makes it ever more important to legitimately shelter as many pennies as possible from the taxman.

Isas, pensions and venture capital trusts are all useful ways of ensuring the money you earn from your investments remains yours.

A new government, whatever the persuasion, will want your money. It is not possible for an individual to use credit to fund their lifestyle into perpetuity and governments are no different. The idea of any political party being the party of low taxation is rubbish.

Recommended

A lot of financial planning firms are relatively small by way of number of employees. One of the challenges faced by a business owner is to ensure staff are supported to develop and improve. Having an individual training plan for each employee can be helpful in focusing on agreed technical learning, as well as skills […]

Paul Lewis looks at the issue of gold as investment as the World Gold Council reports that demand for gold has reached a 30-year high. What is gold investment?Is gold an investment? Last week I would have been very tempted to answer “who cares?” as I fondled a kilogram bar a little smaller than […]

Newsletter

Latest from Money Marketing

Ahead of his appearance at Money Marketing’s flagship conference, Money Marketing Interactive, this April, Helm Godfrey chairman Danby Bloch looks at getting graduates into advice and making adviser the ‘go-to gurus’ of finance What should we be doing to get more new advisers into the profession? There’s no quick fix, but there are lots of […]

The way centralised investment propositions run today is far from perfect. So where do we go from here? There should be a name for the rule of thumb that says, just as the retail financial services industry reaches some consensus that something should be done a certain way, it all starts falling apart. In fact, […]

A look at the important take-aways from the senior manager regime’s previous implementation for those beginning their own preparations The forthcoming extension of the Senior Managers & Certification Regime represents the next major regulatory change that gets to the heart of a firm’s culture, governance and operational considerations. SM&CR implementation will not be a one-time […]

21st January 20193:05 pm

Comments

There is one comment at the moment, we would love to hear your opinion too.

“The Liberal Democrats’ Tim Farron and Labour’s Jeremy Corbyn appear to have very few credible policies or, if they do, their inability to articulate them”.

What is it you don’t understand Mark? Are you not aware of the Labour manifesto or are you just making a cheap political point, in an article that it probably shouldn’t be in. It is all very well for politics to come into reader’s comments, but I would have expected a little more from the writer of the article. Or maybe not, from your company.

Also, although you may well be correct about a Conservative victory (which would hardly be an amazing prediction if it comes to pass) and it could still be a landslide, you seem to be unaware of the extreme narrowing of difference in voters intentions in recent polls that seem to indicate that it might not be a big a result as was first forecast. Yes, anything could make a big difference between now and June 8 but I would have my concerns about the advice of anybody that appears to be so out of touch.
By the way, why the mention of guiding us through the next four years? I didn’t know there had been a change to the fixed term of five years.